Introductory Health Economics

Running head: INTRODUCTORY HEALTH ECONOMICS
Introductory Health Economics
Name of the Student
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1INTRODUCTORY HEALTH ECONOMICS
Table of Contents
Question 1..................................................................................................................................2
Question a...............................................................................................................................2
Question b..............................................................................................................................2
Question c...............................................................................................................................2
Question 2..................................................................................................................................3
Question a...............................................................................................................................3
Question b..............................................................................................................................3
Question c...............................................................................................................................4
Question 3..................................................................................................................................4
Question a...............................................................................................................................4
Question b..............................................................................................................................5
Question c...............................................................................................................................5
Question d..............................................................................................................................5
Question 4..................................................................................................................................6
Question a...............................................................................................................................6
Question b..............................................................................................................................6
Question c...............................................................................................................................7
Question 5..................................................................................................................................8
Question a...............................................................................................................................8
Question b..............................................................................................................................9
References................................................................................................................................10

2INTRODUCTORY HEALTH ECONOMICS
Question 1
Question a
The price elasticity for GP consultations is given as -0.2. If the government promises
to reduce the co-payment of GP services by 10% then this will likely to increase the demand
for GP consultation by (-0.2 *10%) = 2%. As obtained from the estimate, the proportionate
decrease in price is less than the proportionate increase in demand (Baumol and Blinder
2015). The total expenditure on GP services therefore decreases following a reduction in co-
payment of GP services.
Question b
For energy department service, the price elasticity is given as -0.05. Therefore, if a
price rise of 10% is imposed on energy department service, then use of energy department
service will be lowered by (0.05*10) = 0.5 percent.
Question c
Figure 1: Effect of a decrease in co-payment for GP consultations

3INTRODUCTORY HEALTH ECONOMICS
In the above figure, the quantity of GP consultation service is given by the line BL.
The initial indifference curve of the consumer is IC1. The equilibrium is attained at point E1
with consumption of GP consultation and Emergency Department being X1 and Y1
respectively. Now if the co-payment for GP consultation decreases then budget line shifts
pivotally to BL1. The consumer now reaches to a higher indifference curve to IC2. The new
equilibrium now is at E3 (Cowell 2018). The use of GP consultation service increase to X3
while that for emergency department either increases to stays the same. Assuming GDP
consultation is a normal good both income effect (IE) and substitution effect (SE) are
negative.
Question 2
Question a
Externalities refer to the external benefit or costs associated with production or
consumption of a certain good that direct consumers or producers do not take into
consideration. The tobacco smoking is considered as a negative externality in terms of
imposition of a higher cost on the health care system following increased use of heath care
because of smoking. The passive smoking imposes cost on women, children and other non-
smokers by causing asthma and other diseases (Nicholson and Snyder 2014). The smokers do
not consider the cost imposed on non-smokers. The tobacco smoking thus is associated with
entailing externalities on the society.
Question b
a.As discussed above tobacco smoking imposes an external cost non-smokers in terms of
causing different diseases and hence, are considered as negative externalities.
b. As third parties get affected from consumption of tobacco, these are consumption
externalities.